Strategic Focus on Three Sectors and Overseas, coupled with efficient “Post-investment Management + Services”, Boosting the Value of Sustained Release

HONG KONG — Legend Holdings Corporation (“Legend Holdings” or the “Company”; HK:3396) is pleased to announce the audited annual results of the Company and its subsidiaries for the year ended December 31, 2016 (the “Reporting Year”).

– Combined revenue was RMB307 billion, of which revenue from continuing operations was RMB294.7 billion.
– Net profit attributable to equity holders of the Company was RMB4,859 million, an increase of 4.3% compared with last corresponding year; of which, net profit from continuing operations attributable to equity holders of the Company was RMB4,852 million, an increase of 10.5% compared with last corresponding year.
– Basic earnings per share contributed by continuing operations was RMB2.06, an increase of 2% compared with last corresponding year.
– The Board has recommended the payment of a final dividend of RMB0.242 per ordinary share (before tax), an increase of 10% compared with last corresponding year.

During the Reporting Year, the net profit attributable to equity holders of the Company amounted to RMB4,859 million, up 4.3% compared with last corresponding year, with earnings per share at RMB2.06. The net profit in continuing operations attributable to equity holders of the Company amounted to RMB4,852 million, up10.5% compared with last corresponding year. Our strategic investments substantial growth, with over RMB3 billion increase in the net profit attributable to equity holders of the Company. Subject to market fluctuations, the net profit attributable to equity holders of the Company from financial investments sector amounted to RMB2,901 million.

Our strategic investment sectors recorded outstanding figures. The IT sector turned around in profit during the Reporting Year; the financial services sector recorded robust revenue and profit growth; the size of the innovative consumption and services business continued to grow; the agriculture and food business was more comprehensive; and the new materials sector entered into a profitable growth track. Meanwhile, the company made breakthroughs in overseas investment in the financial services sector and agriculture and food sector. The funds of the Company’s financial investment business were further expanded in scale, provided continuous cash inflow to Legend Holdings.

“In view of 2016, the Company has pushed forward the execution of its strategic targets in 2016. On the one hand, we have made adjustments to our investment portfolio in accordance with our strategies, and promoted post-investment management and value-added services; on the other hand, we have deepened industry research and optimized tactics and project sourcing to capture new opportunities. With careful insight and comprehensive consideration, the Company continues to unlock its value. Meanwhile, we awarded medium and long-term incentives to core employees of the Company. The implementation of these incentives will further stimulate the staff’s sense of ownership and long-term commitment to the Company,” says Mr. ZHU Linan, President of Legend Holdings Corporation.

“In the future, we are fully aware that uncertainties in the external environment still exist and will continue for a long time. We also need to evaluate the invested companies from different perspectives to optimize and elevate our investment portfolio through continuously dynamic adjustments. We will insist on the unique ‘two-wheel-drive’ business model of Legend Holdings ‘strategic investments + financial investments’, strengthen the synergistic interactions between ‘two wheels’ at both the mechanism and execution levels, further driving the value of growth. We will endeavor to reach this target in three major strategic sectors, including financial services, innovative consumption and services, and agriculture and food. Taking both local and overseas in view, we will engage in building new pillar businesses. In addition, we will continuously realize the value growth and more explicit value by helping invested companies to carry out capital operations. Such moves can contribute to forming a clearer understanding of the portfolio value of Legend Holdings by capital markets. This is also one of the responsibilities that Legend Holdings as a listed company to shareholders.”

In 2016, an array of changes occurred in international politics, the macro-economy and financial markets. However, based on more than 30 years of amplifying its investments in China and industrial accumulation, Legend Holdings has been able to continue capturing growth opportunities during this year of uncertainty. The Company’s strategic investments have always been centered on consumption upgrades, while the state actively encourages the continuous establishment of industrial areas. By focusing on laying the foundations of enterprise value, through a combination of optimization, post-management and capital operation, the Company has achieved remarkable progress, boosting the value of its sustained release.

– Focus on investment portfolio in three major sectors creates strong source of profit

Legend Holdings is committed to cultivating and strengthening its portfolio with high quality and potential investments. Building on its established advantages and deep insight into economic development trends, the Company is focusing on its strategic investment on three major sectors, including financial services, innovative consumption and services, and agriculture and food. Meanwhile, the Company is actively exploring cross-border investments to elevate the allocation of overseas assets in its portfolio. During the Reporting Year, these three sectors achieved 75%, 43% and 99% revenue growth respectively.

In the financial services sector, the Company supported the original Lakala Group in completing the split of its payment and financial businesses, with the latter becoming a subsidiary of Legend Holdings. The newly established Koala Technology is China’s leading platform for integrated internet financial services, with a rapid developing business; and JC Finance & Leasing is a professional company of Legend Holdings specializing in finance leasing and relative financial businesses, whose indicators have shown strong growth in the one year of its establishment. In the innovative consumption and services sector, the Company continued to converge and develop its existing businesses and constantly built their core competencies. At the same time, the Company continued to seek new investment opportunities. During the Reporting Year, the Company completed a strategic investment in Shanghai Neuromedical Center, a specialist hospital built to the scale of tertiary specialized hospital standards and excelling in several key areas, especially clinical neuroscience. This has established the healthcare services industry as another specialist area. In addition, the Company made positive progress to its cross-border investments in financial services sector and agriculture and food sector through investing in the UK bulk annuity company Pension Insurance Corporation, and taking strategic control of the Australian seafood enterprise KB Seafoods respectively.

To build these new strategic asset investments, Legend Holdings also optimized and adjusted its property development business during the Reporting Year. In September 2016, the Company undertook a timely disposal of its property development business. This important strategic move ensures that the Company’s capital structure can be further improved, and provided more adequate resource reserves for the Company to set out its core strategic investment sectors in the future.

– With deepening of “Post-investment Management + Services”, long-term business enters profitable growth track

As a strategic investor, Legend Holdings sees active and efficient post-investment management as its “natural responsibility”. The Company has further strengthened its management and services in such areas as corporate governance, strategic planning, operational improvement and organizational structure to boost the development of business fundamentals. Some of its businesses have gained better performance, and the long-term business of its investment portfolio has entered into a profitable growth track.

In the area of new materials, the Company improved Levima Group’s capital structure through a debt-to-equity swap, optimization of assets and the introduction of strategic investors so as to focus on new materials in the fine chemicals business, build competitive advantage in the market and provide a solid financial foundation for its independent development. During the Reporting Year, the revenue of Levima Group’s new materials business recorded strong growth of 156% year-on-year and turned around as expected.

Meanwhile, the Company is transforming Joyvio Group into an investment holding platform for its agriculture and food sector through professional investment and operation under an independent corporate scheme. During the Reporting Year, Legend Holdings injected capital of RMB3.3 billion into Joyvio Group to support its future investments and business development, and has injected Funglian and other agriculture and food assets into Joyvio Group. The relatively independent subsidiary operating structure after reconstruction will greatly promote synergies and the efficiency of industrial chains in the future. During the Reporting Year, Joyvio Group entered profitable growth track.

– Great Importance attached to Capital Operation elevated Explicit Enterprise Value

Legend Holdings encouraged and helped the companies in which it invests to bring in new resources required for their development through follow-on financing, spin-offs, public listing and other means of capital operation, which also elevates the overall value of the Company’s investment portfolio.

The Lakala Group completed strategic spin-offs in order to strengthen its focus on the development of each business unit and the close linkage between them, submitting an application to the China Securities Regulatory Commission for an initial public offering and listing its shares on the ChiNext board of the Shenzhen Stock Exchange in March, 2017. In December 2016, Legend Holdings supported Zhengqi Financial in introducing two strategic investors, obtaining strategic investments amounting to RMB801 million. The valuation of Zhengqi Financial promptly grew to RMB9.3 billion, from the RMB2.5 billion four years ago when it started up. In the future, Zhengqi Financial will merge diversified strategic resources to further expand new businesses and regional presence.

Also, Phylion Battery completed a successful F-round of financing with a post-investment valuation of RMB1.5 billion; Liquor Easy listed successfully on the NEEQ; and Joyvio Group’s taking control of GEM A-share listed company Wanfu Biotechnology, laying the foundation for business development and value growth of our agriculture and food business.

Currently, several business segments of Legend Holdings have reached the abilities and conditions for sole public listing. They will consider such plans according to their developing situations.

– Financial investment platforms provided continuous cash inflow; new fund-raising conducted smoothly

As a pioneer in China’s alternative investment sector, Legend Holdings’ financial investment businesses continues to make good use of flexible adjustment and sharp judgement, despite facing the challenges of market fluctuations. Three of the Company’s financial investment platforms covering angel investment, venture capital and private equity investment are all top funds and contribute significantly to its profits and cash flow. During the Reporting Year, the net profit attributable to equity holders of the Company from financial investment amounted to RMB2,901 million. In year 2016, the cash flow provided by Legend Capital and Hony Capital totaled about RMB1.4 billion, new fund-raising conducted smoothly, with further expansion of fund scale and improvement of market appeal. As of the end of 2016, projects under management of Legend Capital were more than RMB30 billion, the internal rate of return of the exited projects ranged between 35% to 40%, projects under management of Hony Capital were RMB68 billion.

Looking forward, Mr. Liu Chuanzhi, Chairman of Legend Holdings states that, “Over the year, the management of Legend Holdings settled on a clear strategy, and the execution of that strategy took a firm and solid step forward, providing a powerful driving force. While the business continues to evolve, the Board is also actively advancing the next strategy in an iterative way. Although changes in the international political environment are bringing a lot of uncertainty to domestic policies, affecting macroeconomics and the creation of systems and business models, the private economy can always seize chances for development. Through years of accumulation and deep research, Legend Holdings has created a unique business model of ‘strategic investments + financial investments’ with synergy between these ‘two-wheel-drive’ businesses. Relying on this business model, we will keep developing leading companies through the capital market and create value for our shareholders.”

Business Segments Review

I. Strategic Investments Business

– The IT sector achieved a turnaround from loss to profit: during the Reporting Year, revenue of this segment was RMB282,551 million, with net profit significantly increased to RMB 4,186 million, mainly as the result of enhancements to the product portfolio, more effective cost control and gains on disposal of property included in one-off projects. In spite of market challenges, Lenovo showed innovation through solid execution of its strategy and focus on fast growing product segments. This has enabled Lenovo to reach a record-high global market share. Its worldwide PC market share increased by 0.8 percentage points year-on-year to 22.4%, while its worldwide commercial PC market share increased by 0.8 percentage points year-on-year to 24.7%, further solidifying its number one position. This is a splendid performance, outperforming the PC market. Lenovo carried out a strategic shift in its mobile business while transforming its China business. Driven by the performance in ROW (rest of world/outside China) markets, the mobile business showed signs of positive momentum. From the perspective of the Data Center Business Group, Lenovo executed its transformation plan by the new business leader, to help build and enhance its long-term competitiveness. During the Reporting Year, Lenovo?s Capital and Incubator Group invested in several new smart device developers and obtained great recognition from the venture capital industry.

– The Financial Services sector recorded robust revenue and profit growth: during the Reporting Year, revenue of Legend Holdings? financial services business segment was RMB1,583 million, an increase of approximately 75%. Net profit increased to RMB1,613 million, a growth of 59%, mainly due to profit growth of the financial leasing business, loan business and investment business of the financial services segment. Legend Holdings has established a broad presence in the financial services business and obtained various financial licenses and permits. Zhengqi Financial further expanded its business and achieved rapid growth in scale, with revenue growing 10% to RMB980 million while net profit increased 39% to RMB721 million. In year 2016, JC Finance & Leasing?s first full year of operation, it initiated co-operation with well-known equipment manufacturers both domestically and internationally, focusing on areas that reflect new economic trends in China such as medical services, advanced manufacturing, energy saving and environmental protection, as well as agri-food. As of December 31, 2016, JC Finance & Leasing?s closing balance of lease receivables from its financial leasing business amounted to RMB5,736 million. Koala Technology is China?s leading platform for integrated internet financial services, focused on the fast-growing field of micro finance, the balance of which amounted to nearly RMB7 billion as at the end of 2016. The maximum single-day credit loan amount of its individual loan business exceeded RMB100 million. In 2016, the business grew rapidly with the number of applicants increasing by nearly five times.

– The Innovative Consumption and Services business continued to grow in size: during the Reporting Year, revenue from this segment increased by 43% to RMB2,132 million. Bybo Dental further developed its strategic presence throughout China. Its outlets increased by 48% to 200, comprising 53 hospitals and 147 clinics in 25 provinces and municipalities. The number of Bybo Dental?s dental chairs in operation rose to 2,569, close to the Company?s strategic goal. Operating revenue increased to RMB1,257 million in 2016, a growth rate of 29% year-on-year. The revenue of CAR increased 29% to RMB6,454 million year-on-year, mainly due to the expansion of its short term rental fleet and an increase in the sales volume of used cars. The total size of CAR?s operating fleet reached 89,813 cars, an increase of 8% compared with the last corresponding year, while the total size of its fleet reached 96,449 cars, a 6% increase. At the end of 2016, CAR had 795 directly-operated service spots in 93 cities around China, made up of 304 outlets and 491 pick-up points covering major first-tier or second-tier cities and tourist spots in the country. Legend Holdings completed a strategic investment in Shanghai Neuromedical Center, expanding its presence in the healthcare service industry as another specialist area. Founded in 2013, Shanghai Neuromedical Center is a specialist hospital built according to the scale of tertiary specialized hospital standards and excels in several comprehensive key areas, especially clinical neuroscience. The key strategic development areas of Shanghai Neuromedical Center include neurosurgery, functional neurosurgery, internal neurology and epilepsy treatment, supported by the development of comprehensive services such as surgery and internal medicine. In particular, its surgery expertise puts it among the leading tier in China in regards to complexity and the standard of its operations for spinal cord tumors and brain tumors. With over 3,000 accumulated cases, the epilepsy center ranks top in China. The number of cases of ketogenic diet for the treatment of pediatric refractory epilepsy and malignant tumors currently ranks top in Shanghai. It also possesses Shanghai?s largest electrophysiology center. Meanwhile business adjustments were made to Zeny Supply Chain, mainly focused on comprehensive cold chain operations and further exploring the commercial mode of light asset operation. Through this fine-tuning of its operations, the losses of Zeny Supply Chain were seen to be narrowed in the Reporting Year.

– The Agriculture and Food business was more comprehensive: during the Reporting Year, revenue of this segment increased by more than 99% to RMB3,266 million. Through integration with the distribution channels of Golden Wing Mau, the business performance of Joyvio Group was significantly enhanced with more balanced capability in different sections of the industrial chain. During the Reporting Year, thanks to this synergetic effect, revenue increased by 22% year-on-year and net profit increased by 211% year-on-year. It commenced its overseas presence by investment in T&G, the largest apple supplier in New Zealand. Joyvio Group also established its presence in the processed food product sector by taking a strategic investment in Hua Wen Food, which is a leading manufacturing food enterprise in China as well as the top brand for fishlet snack products, laying a good foundation for the Company’s presence in the processed food sector. KB Food, in which the Company has newly invested, co-operates with more than 500 suppliers in the world and provides products and services to Australia’s retail and catering markets. It successfully created the “global supply chains + Australian consumption” business model. The post-investment integration has progressed well and it has further consolidated its competitive advantage in Australia.

– The New Materials sector entered into a profitable growth track: during the Reporting Year, the Company recorded significant year-on-year growth of 156% in this segment to RMB4.702 billion, benefiting from the high-quality operation at full capacity of the integrated devices of DMTO and the high-end olefins in the Levima Group, as well as the rapid growth of the power lithium battery market. In consequence, the new materials segment moved from loss to profit, recording profit of RMB184 million during the year. Levima New Materials has innovated polypropylene techniques and successfully developed dystectic homepolymer polypropylene PPH-M600N. It has rapidly become the largest supplier for this product in China, with more than 50% of market share. The product can be widely used in disposable food containers such as lunch boxes, daily necessities, toys, electronic parts and other products, and has strong market prospects and economic benefits. Phylion Battery recorded significant growth in the sales volume of its pure electric logistics vehicle business, recording year-on-year growth of nearly three times. Phylion Battery now ranks second among the domestic suppliers with its market share having risen to 9%.

II. Financial Investment

– Legend Capital (Venture Capital)

As of the end of 2016, Legend Capital managed seven USD funds, four RMB funds, two early-stage RMB funds, one USD fund specializing in the healthcare sector, one RMB fund specializing in the healthcare sector, one RMB fund specializing in the culture and sports sector and one fund operating under the red-chip return concept. In 2016, Legend Capital launched two new RMB funds and one new USD fund, while completing the final closure of three RMB funds and one USD fund, the asset under its management reached more than RMB30 billion.

During the Reporting Year, Legend Capital completed a total of 49 new project investments, covering start-up or growing stage enterprises in TMT, modern services, healthcare, and the culture and sports sectors. It fully or partially exited 15 projects. Among its portfolio companies, two enterprises were listed on the domestic capital market through IPOs, and six enterprises were listed on the NEEQS.

As of December 31, 2016, 39 of Legend Capital’s portfolio companies have been successfully listed and 11 are listed on the NEEQS. Legend Capital achieved an average internal rate of return for its exit projects ranging between 35% and 40%.

In 2017, Legend Capital plans to complete fund-raising for its 7th USD Fund and 4th RMB Fund and launch a 2nd fund specializing in the culture and sports sector. Legend Capital’s newly-raised funds will continue to focus on Chinese enterprises and cross-border opportunities at the start-up or growing stage in TMT, innovative consumption, modern services and intelligent manufacture, healthcare, and the culture and sports sectors.

– Hony Capital (Private Equity Investment)

At the end of 2016, Hony Capital managed eight equity investment funds, two mezzanine funds and one property fund. The eighth equity investment fund was raised in the first half of 2016. As of December 31, 2016, the asset under its management amounted to RMB68 billion.

Hony Capital’s PE funds focus on SOE reforms, the development of private enterprises and cross-border mergers and acquisitions. It concentrates its investments on the specific industries of consumer goods, services, healthcare, advanced manufacturing and mobile Internet. During the Reporting Year, Hony PE funds completed twelve new projects or additional investments in existing projects, covering the start-up or growing stages of enterprises in these sectors.

The investment strategies of Hony Capital’s mezzanine funds are mainly focused on merger and acquisition financing, asset securitization financing and special opportunity financing. During the Reporting Year, Hony mezzanine funds completed five new investments.

During the Reporting Year, Hony PE funds fully or partially exited nine projects, while Hony mezzanine funds fully or partially exited four projects. Meanwhile, three of its portfolio companies were listed in domestic and overseas capital markets in 2016.

As of December 31, 2016, 36 of Hony’s portfolio companies have been successfully listed onshore or offshore (including PIPE investment), another three are listed on NEEQS, and fully exited its investments in 34 companies.

– Legend Star (Angel Investment)

As at the end of 2016, Legend Star totally managed two funds with a size amounting to approximately RMB1.1 billion. They are focused on three major areas, namely TMT, healthcare and intelligent technologies, with an aggregate of over 160 onshore or offshore investment projects. During the Reporting Year, over 40 onshore or offshore new investment projects were commenced, covering frontier fields such as aerospace technology, intelligent vehicles, big data, machine learning and quantum technology. Among the projects under management, 43 have completed a further round of financing and two have successfully been listed on the NEEQS, while three projects have been exited.

At the end of 2015, Legend Star promoted the establishment of Comet Labs, an artificial intelligence (AI) accelerator with a global presence in the AI industry. During the Reporting Year, there were 18 invested projects.

Between 2014 and 2016, Legend Star was ranked in the top tier of the Annual Angel Investment Institution/Early Stage Investment institutions for three consecutive years by two professional institutions in the industry, namely Zero2IPO Group and China Venture Group.